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# Chapter 3 Demand

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• 1. Chapter 3: Demand
• 2. Wants vs. Demand
• Wants are unlimited
• Demand is affected by cost
• 3. Demand
• Economically Speaking: Qty of a good or service one is willing and able to buy at various prices
• If you are unwilling and/or unable to buy, you can’t demand
• Law of Demand: People will buy more at a lower cost , and less at a higher cost
• Price Effect: How Law of Demand affects us - we’ll buy more at a lower price than a higher price.
• ( Prices = incentives, disincentives)
• 4. How to Graph Demand:
• Market Demand : All possible P,Q combinations!
Price (P) Quantity (Q) Demand (D)
• 5. What are considerations of demand?
• Buying Power: “Bang for the Buck”
• Diminishing Personal Value: “What’s more important to you?”
• Diminishing Marginal Utility: “You CAN have too much of a good thing!”
• Marginal: econ-speak for “extra”
• Utility: econ-speak for “happiness, satisfaction”
• 6. Elasticity of Demand
• Elasticity : How much does a change in price affect the quantity demanded?
• Elastic: A Price ∆ can cause an appreciable ∆ in Qty demanded.
• Price Effect is Strong - “Luxury”
• Inelastic: A price ∆ does not really cause a ∆ in Qty demanded
• Price Effect is Weak - “Necessity”
• Quick Math Test: An  in Price =  in Qty
• If the Revenue (P * Q) increases, then inelastic
• If the Revenue (P * Q) decreases, then elastic
• 7. What Affects Elasticity?
• Availability of Substitutes
•  substitutes =  elasticity
• % of Budget
•  % of budget =  elasticity
• Time
•  time to adjust =  elasticity
•  time to adjust =  elasticity
• 8. Price Effect vs. Change in Demand
• Market Demand is the combination of all P and Q demanded
• Various points along demand curve = Price Effect
• A Change in Demand occurs when:
• People demand  Q at all P
• People demand  Q at all P
• 9. A Demand Curve Shift P Q D 1 D 2 D 3 D 1 = Original Demand D 2 = Increase in Demand D 3 = Decrease in Demand
• 10. What Causes A Demand Shift?
• Change in Income
• Prices or Availability of Substitutes
• Prices or Availability of Complements
• Change in Weather or Season
• Change in # of Buyers
• Change in Styles, Tastes, Habits
• Change in Expectations